Too Little, Too Late? What European Central Bankers Do - and Why

When faced with an entirely unprecedented situation how do actors make decisions? Why do they choose one option over another and which ideas inform those choices? For a long time such questions were deemed irrelevant for the world of central banking. In the deceivingly calm days of the ‘Great Moderation’, old controversies appeared settled and open conflicts were almost entirely absent. Those days are over. The crisis of 2007/08 challenged much of central bankers’ conventional wisdom, leaving them without a reliable compass in uncharted waters. Forced to choose among unconventional policies, central bankers increasingly reveal sharply different views and preferences. Even within the consensus-oriented Governing Council of the ECB a rift has opened, most notably between ECB president Mario Draghi and Bundesbank governor Jens Weidmann. While central bankers’ unusually harsh conflicts have taken some by surprise, others believe them to be a natural consequence of extraordinary times. In the words of the Fed’s Charles Plosser: “this is a period of uncertainty and so […] it shouldn’t be surprising at all that all of these smart people have different ways of thinking about this”. Regardless of how surprising or unsurprising we find these diverging views, they are enormously consequential for central bank policies. So how can we understand the different ways of thinking inside central banks and where they come from? Studies of preference formation point to the importance of policy-makers’ career paths (Adolph 2013), education patterns (Chwieroth 2007) and national stability cultures (Issing 2006). These studies, however, do not empirically test the relationship between such variables and the views policy-makers actually hold. This is what my paper examines. By surveying Eurosystem central bankers on their personal backgrounds, economic beliefs, and policy preferences, I set out to explain the choices they make.